We`ve got a new development to report tonight on a story we first brought you yesterday, regarding the biggest contractor in New Jersey, which oversaw millions in Sandy aid funding before it was quietly fired by the state of New Jersey without any public notice in December. You`ll only see that reporting here. So, definitely stick around.

But, first tonight, the Congressional Budget Office released a report yesterday that kicked off the latest battle over Obamacare and the creation of a new right wing talking point right before our very eyes, you would have thought the mainstream media would have learned by now.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: We have breaking news on the FOX News Channel. The individual mandate has been ruled unconstitutional.

UNIDENTIFIED FEMALE: We just got an opinion. The individual mandate cannot be sustained, the Congress` power to regulate commerce. That means the mandate is gone.

HAYES (voice-over): If there`s one thing we`ve learned about the coverage of Obamacare, it`s never to trust the first response from the right, from the stories of canceled plans --

UNIDENTIFIED MALE: They clearly lie to you, the American people, and obviously, they didn`t care.

HAYES: To the toddler who was kicked off Obamacare --

UNIDENTIFIED FEMALE: First, their health insurance was canceled under Obamacare, then they couldn`t find a family plan that would cover their youngest baby.

HAYES: Time and time again, the first hysterical triumphant response of the right has proven to be wrong.

And yet yesterday, we were treated to the news that Obamacare is going to cost more than 2 million jobs.

UNIDENTIFIED FEMALE: The CBO report finds more than 2 million jobs will be lost over the next decade under Obamacare.

UNIDENTIFIED MALE: It`s unbelievable.

UNIDENTIFIED FEMALE: The CBO now says president`s health care law will cut the number of full time jobs in the United States by 2.3 million.

UNIDENTIFIED MALE: Two-point-three million jobs lost?

UNIDENTIFIED MALE: Two-point-three million jobs will be lost because of Obamacare?

SEN. MITCH MCCONNELL (R), KENTUCKY: Two million fewer jobs will be created as a result of Obamacare.

UNIDENTIFIED MALE: All you have to do is figure, I`m going to be one of those 2.5 million.

UNIDENTIFIED MALE: This is a devastating report.

UNIDENTIFIED MALE: Oh, it`s a bombshell.

UNIDENTIFIED MALE: Man, this is just like red meat for Republicans.

UNIDENTIFIED MALE: Yes, I mean, I think the Washington Post said it best when they said this is the worst headline of the year for Democrats.

HAYES: From FOX News, cost of Obamacare, 2.3 million jobs. "The Washington Times", "Obamacare will push 2 million workers out of the labor market."

Glenn Kessler of the "Washington Post" fact-checker finding other seriously flawed headlines. "The Wall Street Journal," "Health law to cut into labor force." "Politico", "Obamacare and jobs. CBO adds fuel to fire." "The Hill", "O-Care will cost 2.5 million workers by 2024." Even an "A.P." reporter trying to strike a false balance.

UNIDENTIFIED FEMALE: Basically what you have is two different ways of characterizing this report.

HAYES: No, there are not two different ways of characterizing the report. Everyone seems to confuse the demand for labor, which is do employers want to hire with the supply of labor, which is do people want to work?

JOSH BARRO, MSNBC CONTRIBUTOR: They say there are going to be people working fewer hours going-forward because of Obamacare, almost entirely because people will choose to work less, they think the effects on the employer side, willingness of employers to hire will be negligible.

HAYES: What the CBO report actually said, is that the Affordable Care Act`s guarantee of health insurance, and the way in which the subsidies work means that people won`t have to work in order to maintain coverage and will be freed up to work less. In fact, House Budget Committee Chairman Paul Ryan, Republican, and no fan of Obamacare, clarified exactly that point in today`s hearing on the CBO report.

REP. PAUL RYAN (R), WISCONSIN: Just to understand this, it`s not that employers are laying people off, that`s that people aren`t working in the workforce, aren`t supplying labor to the equivalent of two and a half million jobs in 2024 and as a result, that lower workforce participation rate, that less labor supplied lowers economic growth?

UNIDENTIFIED MALE: Yes, that`s right, Mr. Chairman.

HAYES: In fact, the real effect of Obamacare on the labor market will actually be the opposite of those initial sloppy false reports.

REP. CHRIS VAN HOLLEN (D), MARYLAND: So, when you boost demand for labor in this kind of economy, you actually reduce the unemployment rate because those people looking for work can find more work, right?

UNIDENTIFIED MALE: Yes, that`s right.

VAN HOLLEN: As the media themselves confessed, they bought hook, line and sinker some of the talking points from our Republican colleagues.

HAYES: And yet the coverage of the CBO report was basically retweets of Congressman Cantor, under Obamacare, "Millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.

It is easy to understand why the right relentlessly attacks Obamacare. They hate it. They want to destroy it.

What is harder to understand is why the media continues to so readily play along.

(END VIDEOTAPE)

HAYES: Joining me now, one of my favorite conservatives, Ben Domenech, publisher of "The Federalist" and the senior fellow of the think tank of Heartland Institute.

All right, Ben. So, can we agree the Cantor tweet characterization of this is just not true, right? That is not the problem here.

BEN DOMENECH, THE HEARTLAND INSTITUTE: The problem is about labor force participation. It`s not about Obamacare that is killing jobs. This is CBO is basically going back and looking at the prediction that they gave us a few years ago, when they said that about 800,000 equivalent full time would drop out of the labor force because of Obamacare. This is them looking at it again after new research that`s been done by Harvard, by MIT scholars, by the University of Chicago in particular, that essentially found that the effect was going to be far more dramatic.

In part this is because of the effect of subsidies on the market place, but it`s really driven by the fact that Obamacare is behaving differently than Romneycare in a couple of key ways, which was the basis for the earlier CBO assumption.

HAYES: So, that is a really good point. And I think actually, this is where we get to a -- there is I think a genuine point of contention, right? Let`s separate out two kinds of ways that people might choose to work less because of Obamacare, right?

DOMENECH: Sure.

HAYES: One, which a lot of people talking about, is this early retirement, which you`ve seen a lot. I`ve heard a lot of people saying, I`m working until I`m on Medicaid, like that is a -- I`m sorry, I`m working I`m Medicare, right? That is a very common thing you hear. There`s a certain amount of people that the presence of Obamacare means, oh, I have guaranteed issue, I`m 60, 61, I can leave my job and I can have health care, I don`t have to stay locked in this job for health care.

That to me seems like a net benefit, right? Do you agree with that?

DOMENECH: You know, yes, and no. I think it`s a net benefit for the people who are there, who are in that position. But in terms of what it can do to the cost of the subsidies, it could increase them --

HAYES: Good point.

DOMENECH: -- because you`ve got older people that are likely to be sicker. So, that may actually increase the cost of those subsidies. So, it`s a slight benefit for those people, but it also could hurt the bottom line.

HAYES: Now, the other thing, right, is that the way -- and this is an undeniable fact. This is not some made up right wing attack. The way the subsidies work in Obamacare, is at the margins, there`s going to be some tradeoff someone`s going to have, which is, do I go into the workforce and earn my income and reduce my subsidy, or do I stay out of the workforce, earn less income and keep my subsidy.

And there`s going to be some pool of people for which that`s kind of a heads or tails slip, and that seems to me the kind of legitimate policy concern and critique for conservatives to make.

DOMENECH: It is, and I think it`s true, here`s the thing to remember, it`s true of all means tested --

HAYES: That is the key point.

DOMENECH: But you have a situation where right now, you`ve got a lot of families out there, where you may have one full time employee and that`s not enough in terms of the bottom line, for a family that`s making -- family of four making about $35,000 a year, the real effects that this has is that it makes it a lot less likely, a lot less tempting for that person to work a full time job, it makes it more tempting to work in a part time capacity, or to maybe not take a part time job for the spouse`s side. And that`s going to have an effect on the broader economy in terms of their future earning power.

HAYES: Right. Now, the other question on this is, how much do we want people to work? Check this out, this is average hours worked, OK? It`s not like Americans are lay-abouts in anyway, OK? We work a lot more than other people.

So, the question is, like, is the good here the weird subtext of this whole thing, once people actually understand what the CBO report was saying, seem to be this kind of idea that man, we need Americans working more hours. I just don`t see that as a political good.

DOMENECH: Well, I think the real question, Chris, for you is, how many jobs are too many jobs? How few jobs are too few jobs?

It`s one of these situations where I think -- in terms of the evaluation that the American people are going to make for themselves, my own perspective is, I`d rather have that family working more hours, it`s going to increase their income over the course of time. It`s going to lead to better outcomes for their family.

The perspective on the other side is -- well, they`re working fewer hours. But they`re going to have health insurance. They`re going to have Obamacare there for them.

HAYES: Right.

DOMENECH: I think that that`s a question of what kind of economy you want. Do you want one where people are working more hours for themselves and their families? Or do you want one where some people are going to be working more hours, paying for their subsidies, and some people may be working fewer hours, but they`ll have health care?

HAYES: I want an honest -- I like -- this is very productive, I think an honest kind of slogan for conservative Republicans is, we want you to work more hours.

Ben Domenech from the Heartland Institute -- thanks so much --

(CROSSTALK)

HAYES: Joining me now, Eric Boehlert, senior fellow at Media Matters.

OK. This was a classic -- every time, every time conservatives kick the shiny ball on Obamacare, everyone goes and chases it, they get it and they`re like, oh, this is not it, this is not the thing that we`ve been reporting to people.

ERIC BOEHLERT, MEDIA MATTERS: So, they`re started changing the topic, right. Sometimes we talk about phony scandals, Benghazi, IRS, how they manufacture these sub cultures. This is sort of old school. This is like textbook misinformation.

So, you take a kernel of truth or something that sounds like a kernel of truth. Obamacare is going to kill 2 million jobs. Republicans, as party starts churning it, simultaneously hitting all cylinders, FOX, Rush Limbaugh, right wing media, they start pushing this, and the question is, what does the mainstream media do?

It`s literally like Media Matters was invented --

HAYES: Right, exactly.

BOEHLERT: To put up these firewalls just --

HAYES: So, why aren`t you doing your job? Why? I should blame you, the fact that -- you`re saying you failed because this happened. Although let me say this on the upside, I`m saying to you off-camera before the show started. The cycle of this was much more truncated than the cycle of the cancelled planned hysteria, which lasted two weeks before anyone actually started doing the follow-up reporting to show that a lot of those stories were not at all what they looked like.

BOEHLERT: And the key here in this cycle, in the mainstream media, some important players stepped up, last night on the network news, most of them are very good and very careful. But that doesn`t cover everyone.

And so, a lot of people went forward with the misinformation. And then they said, then this weird analysis late in the day yesterday, and this morning was -- well, OK, Republicans are lying, but it doesn`t look good for Democrats, they`re going to be able to get attack ads out of it.

HAYES: Yes, let me read this from "Politico" because this was typically. It says, "But what matters politically," oh, yes, you`re right about the numbers, what matters politically is how the numbers look in attack ads. And this election year, 2 lost jobs is a Republican ad makers dream.

Now, all of my liberal comrades are pillorying that, and beating up on Chris Cillizza at "The Washington Post." And I actually think -- and Chris Cillizza, I thought wrote, in his defense, which is that actually, I do think there is a place to distinguish between the substantive first order analysis of what the policy is, and how it will play politically.

I don`t think -- that seems defensible to me. The problem with me, when people are tasked with the first job, which is mastering the policy, knowing the difference between the supply of labor and the demand for labor get it wrong.

BOEHLERT: So, first report should be, what is in the CBO report? What do economists say? What do health care experts say? What is the meaning of this, maybe down in the half or the second lead story, this is how it plays politically?

The press went right to the politics, right to the horse race. Who`s up, who`s down, who`s going to be making attack ads? That`s really not covering health care policy.

I think, frankly, you know, we see a press that cannot stop covering campaigns or get out of campaign mode. You can`t cover a public policy.

HAYES: Right. The first thought was, from the CBO report was not whether these budget productions, what does it mean about if policies are working or not? Or as Ben I think ably pointed out, what assumptions about it? There was stuff in that report for conservatives, people skeptical of Obamacare, too genuinely waived in their favor, it wasn`t like the report said, everything about Obamacare is perfect. It`s just that there was not, it seemed to me, the capacity and facility in the initial reports to actually get their arms around it.

BOEHLERT: Everything is about who`s up and who`s down. Everything is -- this is bad news for Obama. Look, this has been five years. I understand you have a minority party that`s constantly going to be lobbing at the White House.

But that doesn`t mean that`s the news cycle. Republicans attack the White House on fill in the blank. That doesn`t have to happen every day on everything.

This is an important report. It`s an important topic. The press should be able to figure out demand and supply and things like that. And explain why it happened. And then get to the policies.

HAYES: I saw that Senator Joe Manchin, West Virginian Democrat, had described the CBO report today as Obama`s Waterloo, which is funny, because someone else described Obamacare as Obama`s Waterloo, that guy`s no longer in Congress anymore. He`s running a right wing think tank.

The history of predictions of the demise of Obamacare and the political demise of Democrats and Barack Obama because Obamacare has shown to be reliably and sequentially overstated.

BOEHLERT: Yes. And I think the press has sort of bought into this, after years and years and years, people are saying this is the killer, this is the killer, they keep waiting for that knockout punch because they`ve been programmed, I think.

HAYES: Eric Boehlert for "Media Matters" -- thanks so much for your time.

Coming up, why did the Chris Christie administration quietly fire the company it had hired to manage millions of dollars in federal Sandy funds? We have new reporting on the story that we first brought you last night. You`re not going to see it anywhere else on TV.

Stick around.

(COMMERCIAL BREAK)

HAYES: Up next, an update on our follow the Sandy money story from last night, including exclusive from the Obama administration firing back at the Christie administration for trying to blame them with the problems disbursing the money.

You don`t want to go anywhere. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. CHRIS CHRISTIE (R), NEW JERSEY: I`ve made every right decision in the last 15 months on this issue. There are times I had to go back and revisit and say, you know, I thought that was right, it`s wrong, I`ve got change it.

But what you need to know is, today, still, I spend about 40 percent of my time every month on Sandy. It used to be 100 percent, and thankfully for me, it`s going down a little bit, because there are some other things you have to deal with inside the state as well.

(END VIDEO CLIP)

HAYES: Last night, we brought you the story how the biggest contractor distributing Sandy relief funds in New Jersey was very quietly fired by the Christie administration, which has offered no satisfaction explanation into what went down, and why the state of New Jersey paid that contractor a $10.5 million settlement.

Today, we got big news about the performance of the contractor, HGI, which had been tasked with distributing $780 million in funding to Sandy victims in New Jersey. Data obtained by the Fair Share Housing Center through an open records request showed that -- get this -- nearly 80 percent of applicants were rejected for Sandy relief money were found to be eligible upon repeal.

In fact, one out of four applicants who was initially denied relief money by the Christie administration and HGI ended up having that decision reversed. The data tracks with anecdotal evidence we`ve heard from Sandy victims and evidence that suggests HGI simply was not doing a very good job of disbursing the money. HGI did not respond to our request for comment.

We did hear back from the Christie administration, which did not dispute the data, but placed the blame on FEMA, saying the Fair Share report leaves those significant facts in context. The New Jersey Department of Community Affairs told us it investigated the high number of rejections and learned FEMA provided the state with inaccurate assessment data. DCA says it subsequently let applicants use third party damage assessments in their appeals.

Well, we reached out to FEMA, and they basically said, no, that`s not a fair assessment. FEMA told us the New Jersey program is a state run program, eligibility is determined by the state of New Jersey. At the state`s request, FEMA provided its individual assistance data which is specific to eligibility for FEMA`s program, not intended to be comprehensive data assessment for long term recovery work.

Those aren`t the only responses we`ve gotten. Last night, frustrated with the fact that the Christie administration and HGI were not offering clearances over why HGI was fired and paid a settlement of more than $10 million, we put up an e-mail address and asked you to help us get to the bottom of what`s going on.

We`ve got a lot of really interesting responses, including one from Ben Haygood, who has been working to help victims of the storm in New Jersey as part of Occupy Sandy. Here`s what he said, the best supportable answer is that they, HGI, were fired for failing to produce and execute what should have been an executable process. I`m on the ground doing disaster case management band construction project management, specifically helping homeowners navigate this, quote, "process." It`s an extremely mismanaged program, in my opinion, criminally negligent.

Joining me now, Staci Berger, president and CEO of the Housing and Community Development Network of New Jersey.

Questions about HGI -- are you satisfied with the responses we`ve been reporting here from DCA? Is everything seemed copacetic and fine to you?

STACI BERGER, HOUSING & COMMUNITY DEVELOPMENT NETWORK: No, everything does not seem copacetic or fine to us. I was pretty struck by the response that you receive from DCA today. In fact, it raises more questions than it answers because there are a couple of things.

First, if they knew this data was not right, why didn`t they do something about it? Why did they allow people to apply and then apply without really telling the whole country really that something does matter? I mean, this was taxpayer funded recovery money from all across the country. So, everybody has the right to know when the process is not working well.

And so, if there was a problem, people who were appealing needed to know they could appeal because of that, or they needed people who didn`t appeal and the appeals process was onerous in the least. If they were eligible for appeal, they didn`t know it because there was a problem with the FEMA data, which they vehemently disputing. They didn`t know that. So, folks couldn`t apply --

HAYES: Right. The point is that people did not realize if the data set was wrong, right, and if they`re getting rejected for the wrong reasons from the contractor, who has sense been fired, let`s reiterate silently, right? They need to be notified.

BERGER: Absolutely, everybody needs to be notified.

HAYES: Here`s the other thing -- one of the strangest things about this, if it turns out to be the case this contractor is doing a bad job and the Christie administration fired them for doing that job, like kudos to the Christie administration.

BERGER: Wouldn`t they have celebrated saying, touted it to people, saying we heard you, and we did the right thing here? People have a problem with the way the process was going, and we fix it. They didn`t do that at all.

HAYES: That is what`s so weird, particularly because on, I believe, January 8, Richard Constable, who is the head of the Department of Community Defense, Richard Constable, who is one of the two people that Mayor Dawn Zimmer accused of sending the message that she had to OK a private development project in Hoboken in order to get the Sandy relief money flowing, that`s Richard Constable. That Richard Constable.

BERGER: That Richard Constable.

HAYES: He testified specifically about criticism of HGI, you`re at that hearing understand, and when people asked him what`s going on with this, he didn`t say, oh, we just fired them?

BERGER: Right, and he certainly could have, he didn`t explain anything about HGI`s contract being terminated or any changes they were making or the fact that they were evidently running the program inside of DCA with I don`t know who, because it`s not clear who`s answering the phones and running the program, or what kind of training they`ve been getting or how they know whether or not they were doing the right thing. It`s very odd.

HAYES: I want you to put this into the context of the fact that we`ve been getting more reports -- there`s allegations from Dawn Zimmer which possibly have to do with criminal misconduct. Put that aside.

But just a stuff about there`s a senior center in Belleville that gets money, a luxury high rise in New Brunswick. I mean, the people you are working with, the people that are sweating to try to get this money who are getting rejected, what does that look like in the state right now, how do you say this money granted by the federal government is being dispersed in an efficient and fair way?

BERGER: It looks like people who are running the program either don`t know what they`re doing or don`t care enough to know what they`re doing. We asked them multiple times for the state to include housing counseling as part of their program, which New York City and New York state is doing -- are doing rather, and HUD recommends that they do, and New Jersey just opted not to. There`s no one really available to individual homeowners or renters to help through the process, it`s very cumbersome and very difficult process.

HAYES: Is there significant oversight of how this money is getting distributed?

BERGER: I don`t think that there is. There`s an integrity monitor program that was signed by the governor, and was affected immediately. And has not to our knowledge has not been implemented. And certainly would have been in play, should have been in play for Belleville.

HAYES: It took about 10 months for them to appoint an integrity monitor, and integrity monitor has only been appointed or assigned after all of these allegations have started flowing. We still have not gotten good answers on HGI.

And it appears we now have a situation in which they, based on this data, weren`t doing a good job. Either that or the Feds screwed up, the Feds are saying no, don`t look at us.

BERGER: Right. And I think it`s really up at this point up to the federal government to look at what`s going on in New Jersey.

HAYES: Ding, ding, ding.

BERGER: Everybody needs to know what the heck is going on here.

HAYES: The more you look at it, the more you find.

Staci Berger from the Housing and Community Development Work of New Jersey -- great thanks.

BERGER: Thank you.

HAYES: Coming up, it`s been hard out there for cigarette-makers for a while.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I just don`t know what we have to do to make these government interlopers happy. They tell us to make a safer cigarette. We do it, and then suddenly, that`s not good enough.

UNIDENTIFIED MALE: Might as well be living in Russia.

UNIDENTIFIED MALE: Damn straight.

(END VIDEO CLIP)

HAYES: Well, today got even worse for them. I`ll tell you why, ahead.

(COMMERCIAL BREAK)

HAYES: Today would have been the 19th birthday of Trayvon Martin had he not been shot and killed weeks after his 17th birthday. Martin`s mother Sybrina Fulton tweeted this photo celebrating and mourning her son. His father Tracy Martin gave an interview with "Vibe" magazine about life after his son`s death.

And after the folks at Colorlines created #19forTravon, people have been tweeting about what they were doing at 19, and what they wish Trayvon Martin were alive to do as well.

Trayvon Martin`s would-be birthday comes just as the murder trial of Michael Dunn gets underway in Florida. Dunn allegedly opened fire into an SUV in a convenience store parking lot, following a dispute over loud music coming from the car, killing 17-year-old Jordan Davis. Dunn said he acted in self-defense.

What`s so painful about the Trayvon Martin case and the reason why the Michael Dunn trial is getting so much attention, is not just because of the tragic loss of these two individual teenagers, but because of the nagging suspicion that if the roles had been reversed, justice might look very different, because we as a society simply do not trust the motto inscribed in the threshold of the Supreme Court, "Equal justice under the law" is anything more than a sick, twisted joke. We just accept and understand that if you`re a Wall Street banker you`ll get a treated one way and if you`re a black kid in Florida, you`ll be treated another.

Noam Scheiber just wrote a piece at the "New Republic" arguing that no, we should not accept that this is the way the system works. He has a radical and provocative solution for how to change it and he joins me now. He is a senior editor at the "New Republic."

All right, first of all, let`s start on this premise that this thing that I think we all intuitively know like a rich kid gets picked up for something. They hire a fancy defense attorney. They have got a better chance of getting off. That`s the way justice in this country really does work.

NOAM SCHEIBER, "THE NEW REPUBLIC": Yes. If you look at the case I write about in the piece. A teenager named Ethan Couch down in Texas who took his father`s pickup truck, killed four people while driving drunk and hired two very fancy defense attorneys, and they hire an expert witness who came up with this notorious affluenze defense. He did no time. He got sentenced to ten years probation.

I read about another case ten years earlier in Texas, similar situation, working class kid stole a pickup truck, a drunk, killed somebody else. You know, similar circumstances, same judge sentenced him to 20 years.

HAYES: That`s a particular high definition that is structural throughout the system. Let me just show this numbers, average numbers of client served by private attorney 429, by legal aide attorneys, 6,450. So we know that this system looks a lot like how much justice you can buy, so what is the solution?

SCHEIBER: Well, the solution is two folds. One is, you have a massively subsidized legal services for people who are poor, not just poor, but middle class people, working class people, if we think that justice should not be determined by the amount of money you have to pay for it, we have to help people pay for it, we`ve also got to limit the amount of money that the very wealthy can spend on justice.

The reason for that is simple. It is not enough to just have an adequate level of education. If bill gates can spend millions of dollars more in his defense than I can, then that is by definition not equal protection under the law. If the ideal of equal protection, adequacy, we all have to have the exact same resource.

HAYES: Limiting the amount of money rich people can spend on legal representation. Criminal representation, civil representation, you get to spend x amount, you can`t spend any more. That to the ears of a median voter, your average beltway think tank, that is a deeply radical idea you are advocating for. Are you crazy? Are you a socialist?

SCHEIBER: No, no, no. As I said, in health care, in education, I think that the government should provide a high minimum level of services. But if Bill Gates wants to spend millions of dollars more on his health care or millions of dollars more on education for his kids, that`s fine with me. You can spend millions of dollars or more on legal services than I can, say we`re both indicted for a crime. He can effectively buy more justice. That diminishes my status as a citizen or diminishes my equal protection.

HAYES: If you sue Bill Gates or if you`re a co-worker who sues a coal company or the person who drinks some water in West Virginia.

SCHEIBER: Just a crazy example.

HAYES: Who sues the company that managed to leak the chemical into the water supply? In those places in which we have imbalance, there`s a deep sense to which our commitment to equality under law is just being shredded by the fact that we tolerate massively unequal amounts of resources to pour into people`s legal representation.

SCHEIBER: No question. This is not hypothetical at all, the rates at which coal miners win claims for black lung. The rate at which they win is under 15 percent. These are not people who are inventing black lung. This is black lung conditions.

HAYES: In criminal cases we decide what they should be able to spend to themselves against a given charge. No one can spend more, even if she has the money. Those who can`t afford the limit can receive a subsidy. Civil cases, we decide what the plaintiff should be able to spend. Pursue a particular kind of claim or the defendant should be able to spend in response. The same subsidies would apply.

Even if you don`t agree with the solution, making it is not just part of the landscape that we just accept the fact that we have a deeply unequal justice system and deeply unequal access. Noam Scheiber from "The New Republics": Thanks for writing, thanks for coming on.

SCHEIBER: Thanks for having me.

HAYES: How the arrest of four people in New York City part of the investigation into Phillip Seymour Hoffman`s death is a microcosm of the American drug policy next.

(COMMERCIAL BREAK)

HAYES: I don`t know if you`re like me, but three days after the death of Phillip Seymour Hoffman I`m still kind of obsessed with the loss. Four people arrested as police investigate Hoffman`s death. And it struck me that this is a perfect microcosm of all of American drug policy in one headline. Arresting those people is not going to give Phillip Seymour Hoffman`s kids back their father or the world back the incredible talent he was. What does it do? If the people arrested were drug dealers, some other drug dealers are going to move in and take their place.

We see the tragedy and ravages of drug addiction, the harm it causes people`s lives and respond by taking the emotion we feel which is totally appropriate and natural and channeling it into a policy that puts millions of people behind bars and doesn`t change in any appreciable way the rates of drug use or drug death. Heroin use has doubled since 2007 and the price has dropped.

Heroin has killed more Americans than car accidents. And since the inception of the drug war drug use has remained basically stable. The goal of our drug policy should be saving the lives of as many Phillip Seymour Hoffman`s as are out there. If we wanted to do that, there is one drug more deadly to heroin that we have been remarkably successful in attacking. I`ll tell you that success story next.

(COMMERCIAL BREAK)

HAYES: The drugstore CVS did something today you hardly ever see any big corporation to do, they said, we are going to walk away from $2 billion, they`re going to do it by stopping the sales of cigarettes and other tobacco products by October 1st. It`s just a small dent in CVS`s annual revenue. A major corporation is willing to leave billions of dollars on the table because a company that calls itself a health care provider should not be selling cigarettes, which cause half a million deaths every year.

(BEGIN VIDEO CLIP)

LARRY MERLO, CVS, PRESIDENT AND CEO: Every day we are helping millions of patients manage chronic conditions like high blood pressure, high cholesterol and diabetes. And all of these conditions are made worse by smoking.

(END VIDEO CLIP)

HAYES: Today`s announcement is drawing praise from the president himself who released a statement saying; today`s decision will help advance my administration`s efforts to bring down health care costs, ultimately saving lives. The public health battle to lower rates of tobacco use and smoking related deaths has been one of the most successful policy battles of our time. We`ve gone from this.

In a repeated national survey, doctors in all branches of medicine, doctors in all parts of the country were asked, what cigarette do you smoke, doctor? Once again, the brand named most was camel. Yes, according to this repeated nationwide survey, more doctors smoked Camels than any other cigarette.

Two, the federal government directly attacking the tobacco industry in national ads!

When you have a hole in your neck, don`t face the shower head. Be very careful shaving.

And now to a pharmacy chain saying cigarettes do not fit into its mission. We`ve reached this point by attacking cigarettes with stigmatization. Linking smoking to deadly disease 50 years ago, to educating people about the marketing efforts to smoke free workplaces. Here`s what the cumulative effect of all that looks like. The percentage of Americans over 18 who smoke has gone from 42 percent in 1965 to just 18 percent in 2012.

Joining me now is an anti-smoking advocate, John Banzhaf, former executive director of Action on Smoking and Health. He`s now a professor at George Washington University Law School. I want to get your reaction first to the CVS decision, are you surprised to hear about that?

JOHN BANZHAF, ACTION ON SMOKING AND HEALTH: I`m not surprise. I think it was an important and courageous decision. In the long run, I think they`re going to make money out of it rather than losing opinion it`s going to help discourage smoking or help the 90 percent of smokers who want to quit to do so thereby saving taxpayers hundreds of millions of dollars. It will put great pressure on other companies, other pharmacies to stop selling cigarettes or face inevitable legislation.

HAYES: So you have been fighting this battle for a long time, right? As someone who looks at it, who sees it I`ve come in at the tail end of it, where the stigmatization has been very effective? Was it stigmatizing tobacco, precede the companies losing power or did they lose their power and that lead to it being able to successfully stigmatize smoking.

BANZHAF: I think the simple answer is legal action. Some would say suing the bastards. The surgeon general`s report in 1964 was important, but smoking went up in 1964, 1965 and 1966. When we got smoking first restricted and then banned on airplanes, smoking went down. Slowly it is the legal action which has led the way, not Congress. We just want Congress to get out of the way; they`ve done nothing but harm. Once we opened the door, kicked open the door with litigation, we go to legislation usually at the city level, then at the state level. And then we start banning it from that come the stigmatization.

HAYES: The pack of cigarettes in New York right now is $13 or something in that neighborhood. The taxing approach, aside from banning it in certain areas, taxing has also shown itself to be a pretty effective way, particularly when you`re thinking about a substance, when we`re comparing it to drugs. In tobacco we have the drugs legal, and we taxed the heck out of it. That seems effective in driving down demand.

BANZHAF: Taxation is the second most effective weapon we have after banning smoking in workplaces and public places. Also, unlike many other government programs, which cost hundreds of millions or even billions of dollars, it doesn`t cost anything. It brings in money, but unfortunately, many states in the federal government lack the political will to tax cigarettes at the same rate that they are. Teed in many westernized countries!

If we did that, we would reduce it, we have something almost as good right now, help to persuade Congress to help put in the affordable care act a 50 percent surcharge on smokers. They`re feeling it smoking is down in some places by 50 percent. That`s phenomenal when you consider the usual quick rate is somewhere between 8 to 12 percent.

HAYES: Is there a danger that you go too far? Is there some level at which you do Tip over from stigmatization and taxation and regulation which we have this sort of suite of policies that are effective in driving it down and creates, the black market problems that you have with illegal drugs.

BANZHAF: Interestingly, many organizations keep thinking you`re going too far, don`t ask for that, and don`t ask for that. We ask for survey after survey after survey with the people supporting it. When companies decided to give preference to nonsmokers or not to hire smokers, many said, we`re going too far. The public strongly supports it when we ask for more and more taxation.

The public is sick and tired of the fact that some 18 percent of adults are costing us all $300 billion a year, roughly $12,000 per smoker, per employee. We pay for it as taxpayers, taxpayers are getting sick and tired of it, I don`t think we`re going too far, every time we try another step, somebody said you`re going too far, we always keep winning.

HAYES: Thanks a lot, we really learned a lot.

BANZHAF: Thank you.

HAYES: More on what we can learn from the anti-tobacco battle for other progressive fights ahead.

(COMMERCIAL BREAK)

HAYES: We`re back and joining me now, Heather McGee and Sam Seder. I don`t think that we think enough about as progressives, just a tremendous success that has been the decline in the smoking rate. It`s a progressive success story. You had big business trying to muddy the waters on science, as documented in a great book. The parallels between climate science and tobacco science! You had libertarians saying you`re a nanny state, and then you had this cultural message that got sent. And all those things came together, I wonder what else do you think like guns, for instance, is that the solution for guns?

SAM SEDER, HOST, "MAJORITY REPORT": I think there`s potentially the solution with guns. I think it can work in terms of climate change as well. We see it. I think in the context of climate change, one of the studies shows you are five times more likely to quit smoking if you do not like the tobacco companies. Three to five times less likely to start smoking if you do not like the tobacco companies. We see organizations going around and starting to do a divestment program at colleges across the country and to say these carbon energy companies are poisoning us and that`s an externality of our profit making.

HEATHER MCGHEE, DEMOS: Another piece of it that has to happen, though, is the tobacco where it got more expensive, it has to become more expensive to use the --

HAYES: It`s not just moral inflation?

MCGHEE: It got easier to quit. All of the things around smoke free workplaces and all that, doctors not smoking in your face when you came into the talking about cessation, it is easier to conserve.

HAYES: That`s a really good point. There`s real effort being done to say, coal particularly, of all the fossil fuels is like the tobacco. But yes, you also need to have the alternatives, you need to have availability of green energy, technologies like that in order to do the cross process. This chart tells an interesting story. Percentage of cigarette smokers drop e dropped 34.8 percent to 18 percent. Gun related deaths in the same period of time up and up and up.

SEDER: Your guest talked about litigation and that was a big part of the cascade --

HAYES: Let`s remember, a lot of this stuff that was the smoking gun evidence, the fact that they were covering up the science came from science, litigation.

SEDER: That`s where the trial lawyers fill that vacuum, you`re going to see where government action is commuted because of the lobby, we see this in the context of guns, it is one thing to say we have the right to bear arms; it`s another to say we have statutory protection from liability from the product they sell. That is a big problem, because if gun manufacturers can just produce whatever they want it`s one thing to own it, you don`t have do put safety mechanisms on it is another.

MCGHEE: The fact that there are no consumer protections and there`s a statutory bar on being able to use them. They`re killing their users that are what`s so nuts about for the people that are gun owners of America. You can`t even sue on their behalf. I think if you think about Wal-Mart stopping selling guns, that`s basically what --

HAYES: Right, right.

MCGHEE: I don`t know how many of billions of dollars a year Wall-mart would have to leave off the table. That is the goal.

HAYES: There`s also this I think there`s a very interesting cultural aspect of this, in 2004 there`s a Hollywood mandate on smoking in youth related films. No principle character can be seen to smoke in a film taking place during contemporary times and be rated g, PG or PG-13. That was incredibly effective.

MCGHEE: Culture is so important, one of the places that as progressives and activists, there are very few fields that do that well. The other thing that`s important to remember about smoking is that elite smoke died from smoking, lost their partners and spouses to smoking. And that class difference actually, when you have studio execs writing the rules, it touched them directly.

HAYES: They were able to -- they were forced to be made to see that there was a direct connection, right? The thing I think about, there was denial for a long time that the science is junk. That had to be overcome by hook, by crook. It`s been an incredible battle for a long time. Thank you both.

That`s all in for this evening, the "RACHEL MADDOW SHOW" starts right now. Good evening, Rachel.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.END

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